On 17 June 2015 Australia signed a Free Trade Agreement with the Peoples Republic of China (ChAFTA). Negotiations of the ChAFTA have been underway since 2005.  Legislation now needs to be enacted by both Australia and China before the agreement will come into force.

Key Features

Investment

• The ChAFTA introduces a lenient foreign investment screening threshold for Chinese investors similar to those offered to the US and New Zealand;
• ChAFTA liberalises the screening threshold at which private Chinese investments in non-sensitive sectors are considered by Australia’s Foreign Investment Review Board (FIRB) from $252 million to $1094 million;
• Chinese state-owned enterprises are not to be afforded the same leniency’s and will still require FIRB approval on all investments.

Agriculture

• There will be extensive tariff reductions for Australia’s agricultural exports into China with the tariffs on most animal products being completely eliminated within a period of around 4-10 years.

Investor-state Dispute Settlement

• The ChAFTA introduces an Investor-state Dispute Settlement (ISDS) clause which will allow Chinese Corporations to sue the Australian Government if a change in Australian Law harms their investments in Australia (and visa-versa). This is the same style of dispute settlement clause which has been recently criticised in the Trans- Pacific Partnership treaty. Exceptions to this dispute resolution process include regulations in areas such as public health and the environment.

Services

• China has agreed to provide Australia with superior access to compete in various industries for Australian service providers with only Hong Kong and Macau having better access;
• The increased access provisions span across multiple industries inducing; financial services, legal, education, telecommunication and others;
• The ChAFTA also introduced a “most favoured nation” clause which ensures that Australia automatically receives the same treatment afforded to any other country in the future, including the EU.

Benefits of the ChAFTA

China has been Australia’s largest trading partner since 2007, with two-way trade valued at around $160 billion in 2013-14.  This is expected to grow following the implementation of the ChAFTA.  The benefits of the ChAFTA to Australian businesses should include:

• Australia products to be more competitive in the Chinese market;
• Easier entry for Australian businesses into China; and
• More Chinese investment by private Chinese companies in Australia.

For more information please contact ERA Legal.